Briefing Notes

Briefing Note 63 - The impact of the NEST contribution limits and restrictions to transfers

There is currently an annual limit on contributions to the National Employment Savings Trust (NEST) and transfers into or out of NEST before retirement are very limited. The Government has recently issued a call for evidence on the impact of both the annual contributions limit and the transfer restriction, outlining a number of proposals for lifting some or all of the restrictions.

As NEST has been funded by loans from central Government it was perceived that competition with existing pension providers could be unfair, and have a detrimental impact on the pensions market as a whole. To reduce competition, a limit on contributions and restriction on transfers into and out of NEST were put into place. It was considered that these should not prevent NEST from meeting the needs of its target market of low and moderate earners. But they would prevent employers who already had pensions from transferring existing schemes into NEST.

This Briefing Note gives a background to NEST and why there are contribution limits and transfer restrictions. It then analyses the average annual contributions required to achieve a replacement rate and how transfer restrictions could be relaxed.